Month: February 2018

Not Necessarily Consolidation But…

There isn’t much left up for grabs, but 2018 will see a deal in the platform world, says Colin Lambert.

In all the history of the Profit & Loss Crystal Ball, platform consolidation has been the most fertile ground…..mainly for critics! If viewed in terms of the number of deals, however, the story is a little different.

The headline has been in demand from exchange groups for an OTC presence, culminating in deals for Hotspot, 360T and Fastmatch, and it is hard not to see this continuing – in spite of CME finally deciding to do something about further penetrating the OTC space by launching a service itself rather than entering partnerships.

And Finally…

The FX industry has been caught out by the advance of technology before, so although the report looks at the issue across broader markets, the FCA’s study on algorithmic trading should be essential reading for anyone senior in the industry. What concerned me reading the report was further evidence of a lack of understanding about the potential impact and risks associated with using algos at the highest level. Of course, whilst highlighting these themes I have grabbed the opportunity to suggest silly names for algo strategies!

BoE Paper Cites Opposite Impacts of Human and Automated FX Traders

A new working paper from the Bank of England analyses the role of automated trading (AT) in FX markets in a period containing the 15 January 2015 announcement by the Swiss National Bank that it had removed its EUR/CHF floor and finds that while AT “generated uninformed volatility”, human traders did the opposite.
“This ‘Swiss franc event’ represents a natural experiment as one of the largest shocks to the FX market in recent years and probably the most significant ‘black swan’ event in the period in which AT has been a prominent force in FX markets,” the paper states.

Fed Seeks to Bar Third Former Barclays FX Trader

The Federal Reserve Board has announced that it is seeking to permanently bar Peter Little the former head of the G10 FX spot desk at Barclays in New York, from employment in the banking industry. The central bank is also seeking to impose a $487,500 fine on Little, who joined HSBC in New York in mid-2013 as head of G10 spot FX trading.
Little, who is believed to be preparing to challenge the Fed’s finding, is alleged to have engaged in unsafe and unsound practices.

One Cryptocurrency to Rule Them All?

Other cryptocurrencies will continue to catch up with bitcoin this year, but this is by no means a bad thing for this nascent industry, says Galen Stops.

“Whether it works out or not, the bitcoin story definitely has further to go. And regardless of its success or failure, it seems increasingly likely that virtual currency, in one form or another, is here to stay” – “Does Bitcoin Have a Future?” (Profit & Loss, December 2013).

A lot has changed in the intervening years since Profit & Loss published the above statement in conclusion to its first ever feature length article on bitcoin.

FinTech in FX: An Evolutionary Process

Although fintech solutions are likely to change how FX operates throughout the trade lifecycle, expect these changes to be evolutionary rather than revolutionary, explained speakers during a recent Profit & Loss webinar. 

The word “disruption” has become synonymous with fintech in recent years, with numerous articles, whitepapers and analyst reports warning that fintech upstarts are looking to upset the applecart in financial services.

Yet speakers on a recent Profit & Loss webinar, FinTech in FX: Getting Beyond the Hype, which was sponsored by IHS Markit, preferred to talk in terms of innovation rather than disruption when discussing the impact of fintech in the FX markets.

UOB Expands FX Solutions Suite

UOB has added two FX solutions to its suite of cross-border financial products and services in China.
The bank has rolled out a solution that enables onshore banks in China to trade directly with banks overseas via the R5-SHCH Connect without having to source for counterparties and to negotiate trade prices individually.
The second FX solution is direct trading between the RMB and the Thai baht, with the bank claiming it is among the first market makers able to support direct trading for its clients through the China Foreign Exchange Trade System (CFETS).

Hedge Funds Outperform Stocks, Bonds – AIMA

Hedge funds have produced more consistent and steadier returns than equities or bonds over both the short term and the long term, according to new research by Preqin, the data provider, and the Alternative Investment Management Association (AIMA), the global representative of alternative investment managers.
The organisations found that hedge funds have out-performed equities and bonds on a risk-adjusted basis over one, three, five and 10-year periods. Risk-adjusted returns, represented by the Sharpe ratio, reflect the volatility of the returns as well as the returns themselves.

And Another Thing…

As I am writing this on St Valentine’s Day I did think about exploring something my colleague discovered, the launch of Iustcoin, which can be spent in certain “specialist” service sectors, however I fear the content would not pass muster with readers’ filters and so we are stuck with the more mundane. I can however, make a very tenuous link to the aforementioned cryptocurrency by discussing manipulation – specifically, are we getting a little carried away in looking for market manipulation?

Hedge Funds Benefit from January Volatility

Hedge Funds gained 2.11% in January according to the Barclay Hedge Fund Index compiled by BarclayHedge, continuing a strong end to 2017 and extending the Index’ winning streak to 15 months.
The longest consecutive streak of profitable months for the Index was the 18-month period from October 2002 through March of 2004. The current streak has produced a gain of 14.9% for the Index versus 25.7% during the record 18-month streak.
All 17 Barclay hedge fund indices started the year in positive territory.